Economy, Regs, & Taxes

Trump, Carrier and Cronyism

He's only doing what the states are already doing for businesses.

Robin Smith · Dec. 5, 2016

During the presidential campaign, Donald Trump became the voice of the forgotten working class. He clearly declared that the movement of American companies to Mexico and China, taking American jobs with them, was unacceptable, and he pledged to reduce corporate taxes and excessive regulation to aid U.S. workers in keeping their jobs. So it was no surprise that even before taking office Trump renegotiated a deal with Carrier, an Indiana-based subsidiary of United Technologies, to keep the company from moving 1,000 jobs to Mexico. Trump leveraged this event as a major campaign promise made and kept even before the Inaugural.

As for the details, the state of Indiana provided Carrier with a decade’s worth of tax incentives valued at $7 million. It was mighty handy to have VP-elect Mike Pence still serving as governor of the Hoosier state to facilitate such an incentive package. Generally absent from mainstream discussions, however, was the leverage that Trump-Pence had with parent company United Technologies. As a recipient of about $10 billion in subsidies to export aircraft engines via the controversial Export-Import Bank, the government-run corporation that finances and insures foreign purchases, United Technologies likely understood that the air conditioning bone might be connected to the aerospace bone in Trump’s book of anatomy.

The Carrier deal has opened the door for a healthy discussion on America’s tax policy and two questions that must be answered: Are America’s economic markets actually free? Is global trade free and fair?

Before tackling those questions, let’s stipulate that America’s tax policies are generally unfavorable for business. The federal corporate tax rate is 35% (with another average 4% tacked on by states and local governments), making it the world’s third highest. The global average is 22.5%, and all of our major competitors, from China to Germany to the UK, have rates between 20% and 30%. Ireland’s is just 12.5%. Team Trump-Pence has promised to reduce America’s corporate tax rate to 15%.

Now, to those two questions about free and fair markets and trade.

Unfortunately, much of the criticism of Trump’s Carrier deal is valid. Cronyism is still cronyism when Trump does it.

But any criticism of Trump’s deal should likewise be dealt to each and every state for similar deals. The incentives offered by the state of Indiana to Carrier are really no different from favors dealt by any other state, or sometimes by the federal government (Solyndra, anyone?). Incentives range from educational grants for workforce development and retraining to childcare to site development to actual tax credits per job created to the subsidized price of energy. That’s how our system works. It’s not ideal, but Trump’s only playing the same game.

According to Good Jobs First, which tracks corporate deals and state incentive packages, for the last two decades, New York State has awarded in excess of $25 billion to businesses through more than 77,000 subsidies. Louisiana follows second in the ranking with $16 billion in subsidies in just over 8,200 awards. The top 10 is rounded out with Michigan, Washington, New Jersey, Indiana, Kentucky, Texas, Oregon and Missouri. But every single state and the District of Columbia incentivizes companies with taxpayer-funded deals.

What about the question regarding trade. Is the global trade market free and fair?

Did you know that 148 of America’s trading partners have tariffs by other names, such as a value-added tax (VAT) or goods and service tax, on their nation’s imports ranging from 2% to 27%? So while America generally refuses to apply tariffs to imports to meet the terms of trade deals, American products are taxed by our competitors. Is that fair?

It’s unfortunate that Trump threatened to use tariffs against American companies if they move jobs offshore. It could be that his threat will keep jobs here, but if it doesn’t and he carries through, it’ll just be a tax on American consumers.

Did you know that in China, more than $15 trillion in assets is produced by 150,000 state-owned enterprises (SOE) employing more than 30 million Chinese citizens? These SOE’s — or “zombie corporations” — have one boss: the Communist Chinese government. If market share is being lost, forced mergers occur. If overhead increases, wages are manipulated, as is their currency. The Chinese not only ignore intellectual property of competitors, once stolen, their communist companies reproduce at a fraction of the cost and send back to America. Is this free or fair trade?

Within America, our governments at the local, state and federal level have interfered with free markets. That’s the current system.

Within the realm of globalism and corporatism, trade deals have been crafted to operate on a sliding scale of variants that permit some to avoid any types of regulations or standards that match those applied within the U.S. That’s the current system.

Trump has announced to the world that these systems are going to be used to protect American jobs first as reforms occur to boost the economy for Americans, not the citizens of the world. Principled policy always looks good on paper, but in America and internationally, it’s not practiced. Trump promised to “drain the swamp” and to overturn the status quo. If Carrier’s any indication, he’s not off to a great start. Then again, the Americans who kept their jobs and anybody who’s rooting for other Americans to keep theirs won’t mind seeing Trump work the art of the deal.

Click here to show comments

Subscribe! It's Right. It's Free.